Malawi, others lose $2.8bn potential tax

A new research by ActionAid International has found that 20 developing countries, including Malawi, could be missing out on as much as $2.8 billion (K2.1 trillion) in tax revenue.

This potential tax revenue is coming from Facebook, Alphabet Inc., the parent company of Google and Microsoft largely due to unfair global tax rules.

Findings of the ActionAid research released towards the end of last month hinging on the scale of potential tax revenue that could be raised from ‘Big Tech’ companies operating in the global south.

The research analyses Facebook, Alphabet Inc. and Microsoft and the potential tax revenue that their market activity could generate if the tax regime and resulting corporation tax bills better reflected these companies’ economic presence.

The 20 countries contained in the research are Malawi, Bangladesh, Brazil, Ethiopia, Ghana, India, Indonesia, Kenya, Mozambique and Myanmar.

Others are Nepal, Nigeria, Senegal, Sierra Leone, South Africa, Tanzania, Thailand, Vietnam, Zambia and Zimbabwe.

According to ActionAid, $2.8 billion could pay for 729 010 nurses, 770 649 midwives or 879 899 primary school teachers each year in 20 countries across Africa, Asia and South America.

Besides, the potential taxes raised from these three ‘Big Tech’ companies alone could address the World Health Organisation (WHO) estimated shortages of more than 1.7 million nurses in the 20 countries, including Malawi within three years.

WHO estimates that the 20 countries studied by ActionAid need to employ at least 1.7 million more nurses by 2030 to achieve their benchmark of 40 nurses per 10 000 people.

The calculation of the potential tax gap was based on an estimated tax liability of the three companies while a special model was used to calculate profit at country-by-country level as the companies are not required to publish country-by-country reports.

On one hand, the apportioning of profits to each country was based on the estimated number of users in each country and was adjusted for per capita gross domestic product (GDP).

In the absence of more transparent reporting requirements, ActionAid says it is impossible to determine how much tax, if any, the companies pay to the governments in the 20 countries.

Commenting on the findings, global taxation spokesperson for ActionAid International,  David Archer, said it is clear that women and young people are paying the price for an outdated system that has allowed big tech companies to rack up huge profits during the Covid-19 pandemic while contributing little or nothing towards public services in countries in the global south.

“The $2.8 billion tax gap is just the tip of the iceberg. This research covers only three tech giants. But alone, the money that Facebook, Alphabet Inc. and Microsoft would be paying under fairer tax rules could transform public services for millions of people.”

Weighing in, Alex Cobham, chief executive officer for Tax Justice Network, said revelations have confirmed the urgent need for Malawi and others to reprogramme tax systems.

He recalled that in 2013, the G20 asked the OECD [Organisation for Economic Cooperation and Development] to deliver reforms that would make sure taxable profits were declared where companies’ real economic activity takes place.

“Eight years later, ActionAid’s research shows there has been no progress  so that even in countries where public services are desperately short of resources, the excess profits made by digital companies during the pandemic while local businesses are ordered to lockdown, are not giving rise to a fair tax contribution,” said Cobham.

Malawi is currently desperate for high domestic revenue generation, which has recently dipped due to the negative impact of Covid-19 that has knocked down almost all strategic sectors of the economy.

The hardest-hit being manufacturing, tourism and accommodation, health services and wholesale and retail trade sectors.

In the 2020/21 National Budget, for example, the budget deficit is pegged at K755 billion, the highest ever gap between expenditure and revenue in nominal value and represents 34 percent of the K2.2 trillion budget.

Recently, Oxfam in Malawi country director Lingalireni Mihowa said for a country like Malawi, every opportunity that allows to progressively collect more tax from rich individuals such as corporate players should be capitalised by the country “and it is important to do so.”

She said corporate income tax collection could be a more substantial part of domestic tax as a percentage of GDP if the country could increase corporate tax while also ensuring a reduction in large tax exemptions.